DETROIT, June 28 (Reuters) - U.S. car dealers like DonKerstetter have every reason to be happy these days as theindustry is partying like it's 2007 -- facing demand not seensince before a recession that drove General Motors andChrysler into bankruptcy.

The owner of Classic Chevrolet Sugar Land outside Houston ison pace for another month of new-car sales above 200, driven bydemand for the full-size pickup trucks that Texans love.

"The month has been good," he boasted. "It's picked up overthe last week or so in particular. Credit's generally good inour area."

Kerstetter is not alone as U.S. auto industry sales in Juneare expected to rise as much as 8 percent and reach theirstrongest monthly pace since before the recession that forcedthe two U.S. automakers to seek bankruptcy protection in 2009.

In May, U.S. auto sales rose more than expected asconstruction workers and oil drillers bought more pickups tomeet growing demand for their services, a trend major automakersexpect to continue through the rest of the year.

Most analysts expect a sales pace in June of between 15.5million and 15.7 million, the high end of which would mark thestrongest number since December 2007. The industry is scheduledto report June sales on Tuesday, supplying an early indicator ofthe U.S. economy's health.

"We think housing is a driver, but also domestic energyproduction and also the general economic health of states likeTexas, which is a big pickup truck state," said Barclays analystBrian Johnson, who expects an annual sales rate in June of 15.6million vehicles.

Demand for big pickups is so strong that sales this yearwill top 2 million for the first time since 2007 if the currentpace holds, according to Doug Scott, marketing manager for FordMotor Co's top-selling F-150 truck.

The U.S. housing boom and stable gas prices are playing toU.S. automakers' traditional strengths in pickup trucks andSUVs. So far this year, the growth rate for sales of largetrucks, at 21 percent, is three times faster than theindustry's.

"It's actually quite exciting when you think about wheresales could go in a few years if the housing cycle continues togrind higher, improving employment levels," Jefferies analystPeter Nesvold said.

Automakers also are benefiting from lower costs, allowingthem to book profits on all their vehicles including small cars.Raw material prices, including for steel, have moved lower asvehicle prices have risen.

Sterne Agee's raw material cost index is at its lowest levelsince the end of 2010. Raw materials account for about a quarterof the total cost to produce a vehicle; price declines reducedthe cost per vehicle by about $150 last year and even more sofar this year, Sterne Agee analyst Michael Ward said in aresearch note.

Meanwhile, incentives are falling, further helpingautomakers' profits. Industry research firm TrueCar.comestimated they fell another 0.6 percent to $2,537 per vehicle inJune to their lowest level for that month since 2002, excluding2011 when results were skewed by the Japanese tsunami andearthquake.

Concerns remain, however, as executives are watching theFederal Reserve closely to see if its decisions could put adamper on consumer demand.

"It will be interesting to watch where consumer confidencegoes as the market kind of fluctuated in the last week. Theytalk around eventually higher interest rates and what that meansfor consumers' buying confidence," Joe Hinrichs, Ford's head ofNorth and South America, told reporters Thursday at thecompany's product development center in Dearborn, Michigan.

Fed Chairman Ben Bernanke last week surprised markets bysaying the central bank expected to reduce the $85 billionmonthly pace of bond buying later this year and to endquantitative easing altogether by mid-2014 if the economyimproves as expected.

Several recent economic indicators have painted a picture ofan improving U.S. economy, including gains in business spending,and home prices and sales. Consumer confidence this month hitits highest level in more than five years.

Duane R. Paddock, chief executive of Paddock Chevrolet nearBuffalo, New York, certainly has seen the upside. He was hopingto sell 310 vehicles in June, but the store on Friday alreadyhad hit 360 and is aiming to top 400. Last year, it sold 140cars and trucks in June.

"Extremely brisk is the best way to put it, right from thestart of the month, and it's carried and gained momentum throughthe final days here," he said. "We're actually tracking at a50-percent increase year-over-year."